When you take out a home loan, there are certain loan options you want to have to make your loan as convenient and affordable as possible. It's important to ask your lender about what loan options are offered to tailor your loan to your budget and needs.
The following are six important options regarding your home loan that you'll want to have. These options keep you in control so that you can make changes to your loan if you desire as you repay it:
1. Early repayment
If you enjoy higher than expected income in the years after you take out your home loan, you might want to pay your loan off early. However, some lenders have certain limitations when it comes to early repayment and may require you to pay a fee if you pay off your loan early. Having the option to repay your loan early is important because it helps you minimize the interest costs of your loan. Make sure you're aware of repayment options before you take out a home loan from a particular lender.
2. Fixed or variable interest rate
You also want to have the option of taking out either a fixed or variable interest rate loan. Whether you want a fixed or variable interest rate loan depends on whether interest rates are high or low when you borrow. If interest rates are low, you'll want to try to get a fixed-rate loan because you'll be able to enjoy low rates throughout the entire life of the loan. If interest rates are high, a variable interest rate loan might be in your best interests under the assumption that rates will eventually start going down again.
3. Biweekly payment
Many borrowers find it easier to keep up with payments when they can pay biweekly rather than monthly. Paying biweekly helps you to budget for your payment and stay on top of your payments throughout the month. With biweekly payment, you don't have to make individual payments that are so large.
4. Additional payments applied to the principal
Another thing you can do to minimize interest costs is to make added payments throughout the life of your loan that are applied directly to the loan principal. This will reduce the amount that the interest rate is applied to and thereby bring down your overall interest costs. Discuss additional payment options with your lender to see if you'll be able to enjoy flexibility in applying for additional payments directly to the loan principal during repayment.
5. Mortgage recasting
Some lenders allow the possibility of mortgage recasting. Mortgage recasting is a way to have your loan reevaluated if you can make a large lump sum payment toward the loan principal before you completely pay off your loan. Recasting can result in a lower interest rate and a reduced monthly payment amount.
6. Automatic payments
Having automatic home loan payments directly withdrawn from your bank account is probably the best way to make sure that you don't forget to make payments. Most home loan lenders should offer an automatic payment option.
Share11 December 2019
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